(一)what’s moving interest rates?（待译）

I’ve written recently about applying the Engel-Frankel method to making sense of interest rate movements: ask what else moves when rates move, and you get a clue to what’s driving the changes. I’ve previously argued that the behavior of commodity prices suggests that the big rise in interest rates this spring was driven by economic optimism, not fear of deficits.

Here’s another indicator: which way do rates move when we get good or bad news about the economy? If you believed that deficits were the driver, bad news about the economy should push rates up, good news push them down. After all, a weaker economy means lower revenues, a stronger economy higher revenues. But if you believe that interest rates are being driven by changing expectations about when the Fed will be able to come off the zero-rate policy, you’d expect the opposite correlation.

And there’s no question about which way things work in practice. Late last week, for example, a couple of new figures — a better-than-expected Philadelphia manufacturing survey, a decline in continued claims for unemployment insurance — made investors more optimistic about the economy; long-term rates bounced. This morning, a gloomy World Bank Report is weighing on the market; long-term rates are down.

A while back I wrote about anti-green economics — the insistence, by opponents of policies to reduce greenhouse gas emissions, that the economic cost of cap-and-trade would be immense and unsupportable. I cited Robert Samuelson, who ridiculed the Environmental Defense Fund for suggesting that major action on greenhouse gases would only cost a dime a day per person.

Now comes the Congressional Budget Office, which estimates the cost to households of Waxman-Markey in 2020 at $22 billion — which, given a projected population of 335 million, comes to 18 cents a day. Hah! EDH was being over-optimistic. Seriously, EDF was essentially right: the costs of cap-and-trade are very, very low.

The point is that we need to be clear about who are the realists and who are the fantasists here. The realists are actually the climate activists, who understand that if you give people in a market economy the right incentives they will make big changes in their energy use and environmental impact. The fantasists are the burn-baby-burn crowd who hate the idea of using government for good, and therefore insist that doing the right thing is economically impossible.